The COVID-19 pandemic, rampant inflation, and regional conflicts have had a direct impact on Bitcoin (BTC)'s decline in value over the past two years. However, according to Blockstream CEO Adam Back, 2024 promises to be a period of recovery.
The cryptographer, who pioneered the proof-of-work algorithm applied in the Bitcoin protocol, told Cointelegraph that the prominent cryptocurrency is lagging below the historical price trendline of previous mining reward halving events.
“Biblical” events hurt Bitcoin
Back commented on Bitcoin's potential price movements as the next halving approaches and Bitcoin miners' block reward will drop from 6.25 BTC to 3.125 BTC. Block reward halving is programmatically hardwired into the Bitcoin code and occurs every 210,000 blocks.
The issuance of Bitcoin supplies is hardwired into its protocol, with BTC mining rewards halving every 210,000 blocks. Source: bitcoinblockhalf.com
Back says the superimposed averages of previous market cycles and halvings suggest Bitcoin's relative value is falling short of widely accepted predictions. Several events have helped drive BTC price lower, which can also be seen in traditional financial markets:
“The last few years have been like a biblical plague. There was COVID-19, quantitative easing and wars affecting electricity prices. Inflation is driving people up, companies are going bankrupt.”
According to Back, the impact has significant implications for markets and portfolio management. Investment managers have had to manage risk and losses in recent years, requiring them to sell more liquid assets.
“They need to raise cash, and sometimes they sell the good stuff because it's liquid and Bitcoin is super liquid. That used to happen with gold, and I think that’s been a factor for Bitcoin in recent years,” explains Back.
Bitcoin would have already reached the $100,000 mark
As 2023 comes to a close, many of these macroeconomic events cited by Back have subsided, while more industry-specific failures have also been resolved. This is reflected in Bitcoin’s recent price increase from November 2023.
“The wave of contagion, the companies that went bankrupt because they were exposed to Three Arrows Capital, Celsius, BlockFi and FTX – that's mostly taken care of. “We don't think there are many big surprises ahead,” Back said.
Related: Blockstream Targets Sustained Surplus of Bitcoin Miners with Series 2 BASIC Note
The Blockstream CEO previously predicted that Bitcoin would reach $100,000 in the next market cycle and made this point. He believes that BTC would have already reached this mark without the macro factors highlighted earlier.
Back also pointed to pseudonymous former institutional investor PlanB’s Bitcoin “stock-to-flow” model as a reference point for Bitcoin’s potential upside in 2024.
If you want to learn more about Bitcoin Stock-to-Flow:
*This is the original article from 2019: https://t.co/n5P5uMCKHT
*Or watch this YouTube video:https://t.co/3SGMU1Ln00 pic.twitter.com/Qp8SjqtXIB
— PlanB (@100trillionUSD) December 5, 2023
Back explains that PlanB's model and heuristics suggest that savvy Bitcoin investors have historically bought BTC six months before a halving event and sold it at significant price increases in the 18 months following the decline in mining rewards:
“People thought it was a bit crazy to claim that we could hit $100,000 before the halving because I said that when the price was around $20,000.”
He adds that Bitcoin price hitting $44,000 multiple times in December 2023 suggests that his previous prediction may not be so far-fetched.
The Bitcoin ETF effect
Prominent investors and market analysts have also highlighted the implications of the possible approval of multiple spot Bitcoin exchange-traded fund (ETF) applications by the US Securities and Exchange Commission (SEC).
People ask me if we changed the quotas. No, we're still left with a 90% chance of approval by January 10th (aka this cycle), the same odds we've had for months (before it was cool/safe). What we're watching now: More amended/final filings and providing clarity on in-kind vs. cash https://t.co/uiWgfxOfzz
— Eric Balchunas (@EricBalchunas) November 29, 2023
Senior ETF analysts Eric Balchunas and James Seyffart have touted that these applications will receive the green light in early 2024. Galaxy Digital co-founder Michael Novogratz has also predicted a massive influx of institutional investment into the BTC-backed products, a point echoed by Back:
“I find Bitcoin could reach $100,000 before the ETF and before the halving. But I definitely believe that the influence of the ETF should not be understated.”
The main reason given by the Bitcoin proponent is that entire segments of traditional markets, including large fund managers like BlackRock and Fidelity, are simply not allowed to invest directly in assets like Bitcoin.
Related: Bitcoin ETFs will drive institutional adoption in 2024 – Galaxy Digital's Mike Novogratz
“If they manage a mutual fund, there are rules in place either externally or as part of their fund that they can only buy things like public stocks and ETFs. They can't buy into startups, they can't physically buy precious metals. You can’t do any of that,” Back said.
This remains a key reason why a spot Bitcoin ETF could drive significant capital inflows into this space. Back adds that the investment vehicle opens up access to Bitcoin exposure to many types of funds, particularly in the US, which are more inclined to do so through Fidelity or BlackRock than through a cryptocurrency exchange.
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